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June 16, 2014

PIMCO Outflows Hit $26.5 Billion for 2014 as Vanguard Shines

The bond shop sees investors pull some $4.3 billion for the Total Return Fund in May alone, Morningstar reports

Despite positive momentum in the equity markets, investors moved nearly $7 billion out of stock funds and some $9.6 billion into taxable bond funds in May, according to Morningstar.

But this trend didn’t help the PIMCO Total Return Fund (PTTRX), which saw its outflows worsen in May — when it shed $4.3 billion, the research group said Friday. This brings the fund’s year-to-date outflows to $15.7 billion and its cumulative outflow during the past 12 months to $59.6 billion.

“The fund has returned 3.3% in the first five months of the year but still lags the intermediate-term bond category,” the report said.

On the plus side, though, the PIMCO International Low Volatility RAFI-Plus AR (PLVTX) had inflows of more than $1.5 billion for the month; its inflows year to date are about $3.5 billion. The PIMCO EMG International Low Volatility RAFI-Plus AR (PLVLX) had inflows in May of $1.0 billion.

Morningstar points out that the intermediate-term bond category enjoyed its third-straight month of inflows in May, as PIMCO lost market share in the category.

Some funds gaining assets in the period include the Metropolitan West Total Return Bond Fund (MWTIX), the Dodge & Cox Income Fund (DODIX) and the T. Rowe Price New Income Fund (PRCIX).

Morningstar points out that outflows from equity funds in the period were partly due to transfers from mutual funds to collective investment trusts (CITs) at Fidelity.

Taxable-bond funds received $9.5 billion of net new money in May, while roughly $3.7 billion flowed into municipal-bond funds.

The Chicago-based firm notes that it computes flows by estimating the change in assets not explained by the performance of the fund and assuming that flows occur uniformly over the course of the month.

The Vanguard Total Stock Market Index Fund (VTSAX) boosted its assets by $3.1 billion in May.

“Active mutual funds have seen their market share of U.S. equity fund assets drop to 64% from 89% 15 years ago as exchange-traded funds and passive mutual funds have grown to 36% of assets,” Morningstar explains.

Costs appear to be a factor

“The asset-weighted U.S. equity fund expense ratio is just 0.14% for passive funds, compared with 0.84% for active funds. While the expense ratio for active funds has declined, it is still 6 times higher than the passive fund asset-weighted expense ratio. Institutional investors are likely pressuring fund managers to reduce fees,” the group noted.